2016 BAR EXAMINATION QUESTION AND SUGGESTED ANSWER IN TAXATION LAW

FREQUENTLY ASKED ARTICLES IN TAXATION LAW

20 Main Questions and 3 Sub questions a total of 23 Questions
QUESTIONS TAKEN FROM INCOME TAX (6 Questions)
Sources of Taxable Income (Individual Taxpayer)
Q. 20. An alien who re-acquire Philippine Citizenship, his income
classification would be a “resident citizen”
Allowable Deductions
Q. 3 Requisites for deductibility of a bad debt, Sec. 34, (E), NIRC
Q. 15 Reasonable allowance for entertainment, amusement and recreation
expenses, Sec. 34 (A) (1) (a) (iv)
Q. 18 Rental expenses
Sources of taxable Income (Tax on Corporation)
Q. 5 sources of taxable income of a Foreign Corporation (selling airplane
tickets through its general agent in the Philippines.
Fringe Benefits
Q. 6. De minimis benefits, Sec. 33

QUESTIONS TAKEN FROM TAX REMEDIES (4 Questions)

Tax Refund
Q. 9 (B) Explain the procedure for claiming refunds of tax erroneously or
illegally collected from filing of the claim for refunds with the CIR up to
CTA
Revised Rules of the Court of Tax Appeals (AM No. 05-11-07-CTA, November 22, 2005)
Q. 2. State at least 5 exclusive appellate jurisdiction of the Court of Tax
Appeals
Legal Remedies of a Tax Payer
Q. 16 Judicial Remedy 120+30 days – BIR RULING
Q. 17 waiver of 3 year prescriptive period for the BIR to assess taxes due
QUESTIONS TAKEN FROM GENERAL PRINCIPLES (6 Questions)
Q.1 Explain Lifeblood doctrine, necessity theory, benefits-received theory,
Doctrine of symbiotic relationship
Q. 10 (A) Effect of converting discount from a tax credit to a tax deduction
Q. 10 (B) Tax Deduction scheme is a valid exercise of the police power of the
state.
Q. 11 Tax Credit
Q. 14 Tax Evasion
Q. 19 (B) Explain concept of Double Taxation
QUESTIONS TAKEN FROM TRANSFER TAXES (ESTATE and DONOR Taxes)
(2questions)
Estate Tax
Q. 19 Decedent is a non-resident and left property in the Philippines (shares
of stock), Sec. 104, NIRC - can CIR of the Philippines tax the same
shares?
Donor’s Tax
Q. 8 is assignment of share subject to gift tax?

QUESTIONS TAKEN FROM LOCAL GOVERNMENT TAXATION (RA 7610) (2 Questions)

Q. 4 Question on legality of tax ordinance, RE: Transfer Tax on Real
Property Ownership, Sec. 135, LGC
Q. 12 Classification of Medical Arts Center as Special assessment
Special vs. Commercial Classification of improvements for
assessment
QUESTIONS TAKEN FROM REAL PROPERTY TAXATION (1 Question)
Q. 7 GOCC tax exemption in RPT
QUESTIONS ON VALUE ADDED TAX (VAT) (2 Questions)
Q. 9 (A) Procedure for claiming refunds or tax credits of input VAT, Sec. 112
from filing of an application with the CIR up to the CTA

Q. 12 RE: Zero rated VAT - Services rendered to persons or entities

whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively
subjects the supply of such service to zero percent (0%) rate
(Section 108(B) 3, NIRC).
 2016 Taxation Bar Exam
VAT
9%
Real Property Tax
4% Income Tax
26%
Local Government
9%

Transfer Tax
9%

Tax Remedies
17%

General Principles
26%

2016 BAR EXAMINATION QUESTION AND SUGGESTED ANSWER IN TAXATION LAW

Q. 20. Patrick is a successful businessman in the United States and he is a sole

proprietor of a supermarket which has a gross sales of $10 million and an annual
income of $3million. He went to the Philippines on a visit and, in a party, he saw Atty.
Agaton who boasts of being a tax expert. Patrick asks Atty. Agaton: if he (Patrick)
decides to reacquire his Philippine citizenship under RA 9225, establish residence in
this country, and open a supermarket in Makati City, will the BIR tax him on the
income he earns from his U.S. business? If you were Atty. Agaton, what advice will
you give Patrick? (5%)
SUGGESTED ANSWER
I will advise Patrick that once he re-acquires his Philippine citizenship and
establishes his residence in this country, his income tax classification would then be
a ‘resident citizen’. A resident citizen is taxable on all his income, whether derived
within or without the Philippines; accordingly, the income he earns from his business
abroad will now be subject to the Philippine income tax (Sec. 23, NIRC).

Q. 3. Rakham operates the lending company that made a loan to Alfonso in the
amount of P120,000.00 subject of a promissory note which is due within one (1) year
from the note’s issuance. Three years after the loan became due and upon
information that Alfonso is nowhere to be found, Rakham asks you for advice on how
to treat the obligation as “bad debt.” Discuss the requisites for deductibility of a “bad
debt?” (5%)
SUGGESTED ANSWER
I will advise Rakham that the obligation of Alfonso may now be considered as bad
debts for having met the yardstick of a debt which had become worthless. In order to
be considered worthless, the taxpayer should establish that during the year from
which a deduction is sought, a situation developed as a result of which it became
evident in the exercise of sound, objective business judgment that there remained no
practical, but only vaguely theoretical, prospect that the debt would ever be paid
(Collector of Internal Revenue v. Goodrich International Rubber Co., G.R. No. L-
22265, December 22, 1967, 21 SCRA 1336). A bad debt is deductible if it complies
with the following requisites:
(a) There must be a valid and subsisting debt.
(b) The obligation is connected with the taxpayer’s trade or business and is
not between related parties.
(C) There is an actual ascertainment that the debt is worthless.
(d) The debt is charged-off during the taxable year. A partial write-off is not allowed.
(PRC v. CA, G.R. No. 118794, May 8, 1996, 256 SCRA 667).

Q. 15. Peter is the Vice President for Sales of Golden Dragon Realty Conglomerate
Inc. (Golden Dragon). A group of five (5) foreign investors visited the country for
possible investment in the condominium units and subdivision lots of Golden Dragon.
After a tour of the properties for sale, the investors were wined and dined by Peter at
the posh Conrad’s Hotel at the cost of P150,000.00. Afterward, the investors were
brought to a party in a videoke club which cost the company P200,000.00 for food
and drinks, and the amount of P80,000,00 as tips for business promotion officers.
Expenses at Conrad’s Hotel and the videoke club were receipted and submitted to
support the deduction for representation and entertainment expenses. Decide if all
the representation and entertainment expenses claimed by Golden Dragon are
deductible. Explain. (5%)
SUGGESTED ANSWER
Reasonable allowance for entertainment, amusement, and recreation expenses
during the taxable year that are directly connected or related to the operation or
conduct of the trade, business or profession, or that are directly related to or in
furtherance of the conduct of his/its trade, business, or exercise of a profession not
to exceed such ceilings prescribed by rules and regulations, are allowed as
deduction from gross income. In this case, the expenses incurred were to entertain
the investors of Golden Dragon; thus, the amount deductible for entertainment,
amusement and recreation expenses is limited to the actual amount paid or incurred
but in no case shall the deduction exceed 0.50% of net sales for taxpayers engaged
in the sale of goods or properties (Sec. 34(A)(1)(a) (iv), NIRC as implemented by RR
No. 10-2002).

Q. 18. Henry, a U.S. naturalized citizen, went home to the Philippines to reacquire
Philippine citizenship under RA 9225. His mother left him a lot and building in Makati
City and he wants to make use of it in his trading business. Considering that he
needs money for the business, he wants to sell his lot and building and make use of
the consideration. However, the lot has sentimental value and he wants to reacquire
it in the future. A friend of Henry told him of the “sale-leaseback transaction”
commonly used in the U.S., which is also used for tax reduction. Under said
transaction, the lot owner sells his property to a buyer on the condition that he leases
it back from the buyer. At the same time, the property owner is granted an option to
repurchase the lot on or before an agreed date. Henry approaches you as a tax
lawyer for advice.
Explain what tax benefits, if any, can be obtained by Henry and the buyer from the
sale-leaseback transaction? (5%)
 
SUGGESTED ANSWER
Henry will be entitled to claim rental expense as a deduction from his gross income
in the trading business. His lease payments plus interest would be substantially
higher than the depreciation expense he may claim in computing his taxable income;
hence, the lease would result in the additional benefit of increasing his additional tax
deductions. The buyer will be deriving rental income from the property and be able to
claim business deductions such as real property taxes, repairs and maintenance,
depreciation and other expenses necessary for the renting out of the property.
Q. 5. Sure Arrival Airways (SAA) is a foreign corporation, organized under the laws
of the Republic of Nigeria. Its commercial airplanes do not operate within Philippine
territory, or service passengers embarking from Philippine airports. The firm is
represented in the Philippines by its general agent, Narotel. SAA sells airplane
tickets through Narotel, and these tickets are serviced by SAA airplanes outside the
Philippines. The total sales of airplane tickets transacted by Narotel for SAA in 2012
amounted to PIO,000,000.00 The Commissioner of Internal Revenue (CIR)
assessed SAA deficiency income taxes at the rate of 30% on its taxable income,
finding that SAA’s airline ticket sales constituted income derived from sources within
the Philippines. SAA filed a protest on the ground that the alleged deficiency income
taxes should be considered as income derived exclusively from sources outside the
Philippines since SAA only serviced passengers outside Philippine territory. It, thus,
asserted that the imposition of such income taxes violated the principle of territoriality
in taxation. Is the theory of SAA tenable? Explain. (5%)
SUGGESTED ANSWER
No. The activity which gives rise to the income is the sale of ticket in the Philippines,
hence, the income from sale of tickets is an income derived from Philippine sources
which is subject to the Philippine income tax. Accordingly, there is no violation of the
principle of territoriality in taxation (Air Canada v. CIR, G.R. No. 169507, January 11,
2016, 778 SCRA 131).
Q. 6. Mapagbigay Corporation grants all its employees (rank and file, supervisors,
and managers) 5% discount of the purchase price of its products. During an audit
investigation, the BIR assessed the company the corresponding tax on the amount
equivalent to the courtesy discount received by all the employees, contending that
the courtesy discount is considered as additional compensation for the rank and file
employees and additional fringe benefit for the supervisors and managers. In its
defense, the company argues that the discount given to the rank and file employees
is a de minimis benefit and not subject to tax. As to its managerial employees, it
contends that the discount is nothing more than a privilege and its availment is
restricted.
Is the BIR assessment correct? Explain. (5%)
 
SUGGESTED ANSWER
No. The courtesy discounts given to rank and file employees are considered “de
minimis benefits” falling under the category of other facilities and privileges furnished
or offered by an employer to his employees which are of relatively small value
intended to promote the health, goodwill, contentment or efficiency of the employee.
These benefits are not considered as compensation subject to income tax and
consequently to the withholding tax (Sec.2.78.1′ of RR No. 10-2008). If these “de
minimis benefits” are furnished to supervisors and managers, the same are also
exempt from the fringe benefits tax (RR No. 3-98; Sec. 33, NIRC).

Q. 9 (B) Explain the procedure for claiming refunds of tax erroneously or illegally
collected under Sec. 229 of the NIRC from the filing of the claim for refunds with the
CIR up to the CTA. (2.5%)

Q. 2. State at least five (5) cases under the exclusive appellate jurisdiction of the
Court of Tax Appeals (CTA). (5%)
 
SUGGESTED ANSWER
The following cases are under the exclusive appellate jurisdiction of the Court of Tax
Appeals.
Exclusive appellate jurisdiction to review by appeal:
Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the NIRC or other laws administered
by the BIR;
Inaction of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the NIRC or other laws administered
by the BIR, where the NIRC provides a specific period of action, in which case the
inaction shall be deemed a denial;
Decisions, orders or resolutions of the RTC in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction;
Decisions of the Commissioner of Customs in cases involving liability of customs
duties, fees or other money charges, seizure, detention or release of property
affected, fines, forfeitures or other penalties in relation thereto, or other matters
arising under the Customs Law or other laws administered by the Bureau of
Customs; and
Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real
property originally decided by the provincial or city board of assessment appeals.
Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs adverse to
the Government under Sec. 2315 of the Tariff and Customs Code; and
Decisions of the Secretary of Trade and Industry, in the case of nonagricultural
product, commodity or article, and the Secretary of Agriculture, in the case of
agricultural product, commodity or article, involving dumping and countervailing
duties under Sec. 301 and 302. respectively, of the Tariff and Customs Code, and
safeguard measures under R.A. No. 8800, where either party may appeal the
decision to impose or not impose said duties.
Exclusive appellate jurisdiction in criminal offenses:
 
Over appeals from the judgments, resolutions or orders of the Regional Trial Courts
in tax cases originally decided by them, in their respective territorial jurisdiction; and
 
Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction over tax cases originally decided
by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial
Courts in their respective jurisdiction.

Q. 16. Amor Powers, Inc. (API) is a domestic corporation registered with the BIR as
a value-added taxpayer. API incurred excess input VAT in the amount of
P500,000,000.00 on August 3, 2008. Hence, it filed with the BIR an administrative
claim for the refund or credit of these input taxes on August 15,2010. Without waiting
for the CIR to act on its claim, API filed a Petition for Review with the CTA on
September 15, 2010 before the lapse of two years after the close of the taxable
quarter concerned.
In its Comment on the Petition, the CIR argues that API’s Petition should be
dismissed as it was filed before the lapse of the 120-day period given to the CIR by
Sec. 112(D) of the NIRC, which became effective on January 1, 1998. For the CIR,
the 120-day period is mandatory and jurisdictional so that any suit filed before its
expiration is premature and, therefore, dismissible, API, on the other hand, invokes
BIR Ruling No. DA-489-03 issued by the CIR on December 10, 2003 in answer to a
query posed by the Department of Finance regarding the propriety of the actions
taken by Lazi Bay Resources Development, Inc., which filed an administrative claim
for refund with the CIR and, before the lapse of the 120-day period from its filing,
filed a judicial claim with the CTA. BIR Ruling No. DA-489-03 stated that the
taxpayer-claimant need not wait for the lapse of the 120-day period before It could
seek judicial relief with the CTA.
Will API’s Petition for Review prosper? Decide with reasons. (5%)
SUGGESTED ANSWER
Yes. The petition for review filed by API falls within the exemption from the
mandatory 120 + 30-day requirement in pursuing a judicial remedy for a claim of
refund of input taxes attributable to zero-rated sales. All claims for refund filed
between October 6, 2003 when BIR Ruling No. DA-489-03 was issued until the
promulgation of the decision by the Supreme Court ruling on the period by which a
taxpayer may pursue a judicial remedy for a claim for refund, must follow the period
prescribed in the BIR Ruling (CIR v. Aichi Forging of Asia, Inc., G.R. No. 184823,
October 6, 2010, 632 SCRA 422).

Q. 17. The requisites for a valid waiver of the three-year (3-year) prescriptive period
for the BIR to assess taxes due in the taxable year are prescribed by Revenue
Memorandum Order (RMO) No. 20-90:
The waiver must be in the proper form prescribed by RMO 20-90.
The waiver must be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any of its
responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.
The waiver should be duly notarized.
The CIR or the revenue official authorized by him must sign the waiver indicating that
the BIR has accepted and agreed to the waiver. The date of such acceptance by the
BIR should be indicated. However, before signing the waiver, the CIR or the revenue
official authorized by him must make sure that the waiver is in the prescribed form,
duly notarized, and executed by the taxpayer or his duly authorized representative.
Both the date of execution by the taxpayer and date of acceptance by the Bureau
should be before the expiration of the period of prescription or before the lapse of the
period agreed upon in case a subsequent agreement is executed.
The waiver must be executed in three copies, the original copy to be attached to the
docket of the case, the second copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was notified of the
acceptance of the BIR and the perfection of the agreement.
After being assessed by the BIR with alleged deficiency income taxes, VVV
Corporation (VVV) through Enrique, its President, executed a waiver of the
prescriptive period. The waiver was signed by Revenue District Officer (RDO)
Alfredo. However, the waiver did not state the date of execution by the taxpayer and
date of acceptance by the BIR. Enrique was also not furnished a copy of the waiver
by the BIR.
VVV claims that the waiver ‘is void due to non-compliance with RMO 20-90. Hence,
the period for assessment had already prescribed. Moreover, since the assessment
involves P2million, the waiver should have been signed by the CIR and instead of a
mere RDO. On the other hand, the BIR contends that the requirements of RMO No.
20-90 are merely directory; that the execution of the waiver by VVV was a
enunciation of its right to invoke prescription and that the government cannot be
estopped by the mistakes committed by its revenue officers. Is VVV liable? Explain.
(5%)
SUGGESTED ANSWER
No. The waiver was executed after VVV Corporation (VVV) was assessed for
deficiency income taxes obviously to justify the assessment made after prescription
had set in. This is the reason why WWV is invoking prescription due to the alleged
invalidity of the waiver for failure to comply with the requisites set forth under RMO
20-90. A waiver executed beyond the prescriptive period is ineffective (CIR v. The
Stanley Works Sales (Phils), Inc., G.R. No. 187589, December 3, 2014, 743 SCRA
642).

Q. 1. Briefly explain the following doctrines: lifeblood doctrine; necessity the benefits
received principle; and, doctrine of symbiotic relationship (5%)
SUGGESTED ANSWER
The following doctrines, explained:

✓ Lifeblood doctrine – Without revenue raised from taxation, the government will not
survive, resulting in detriment to society. Without taxes, the government would be
paralyzed for lack of motive power to activate and operate it (CIR v. Algue, Inc., G.R.
No. L-28896, February 17, 1988, 158 SCRA 9).

✓ Necessity theory – The exercise of the power to tax emanates from necessity,
because without taxes, government cannot fulfill its mandate of promoting the
general welfare and well being of the people (CIR v. Bank of Philippine Islands, G.R.
No. 134062, April 17, 2007, 521 SCRA 373).

✓ Benefits received principle – Taxpayers receive benefits from taxes through the
protection the State affords to them. For the protection they get arises their obligation
to support the government through the payment of taxes (CIR V. Algue, Inc., G.R.
No. L-28896, February 17, 1988, 158 SCRA 9).
reciprocal relation of protection a taxpayers. The state gives protection an protection,
it must be supported by (CIR v. Algue, Inc., G.R. No. L-28896, Februar

✓ Doctrine of symbiotic relationship – Taxation arises because of the reciprocal

relation of protection and support between the state and taxpayers. The state gives
protection and for it to continue giving protection, it must be supported by the
taxpayers in the form of taxes. (CIR v. Algue, Inc., GR. No. L-28896, February 17,
1988, 158 SCRA 9).

Q. 10. Congress issued a law allowing a 20% discount on the purchases of senior
citizens from, among others, recreation centers. This 20% discount can then be used
by the sellers as a “tax credit.” At the initiative of BIR, however, Republic Act No.
(RA) 9257 was enacted amending the treatment of 20% discount as a “tax
deduction.” Equity Cinema filed a petition the RTC claiming that RA 9257 is
unconstitutional as it forcibly deprives sellers a part of the price without just
compensation.
(A) What is the effect of converting the 20% discount from a “tax credere to a “tax
deduction”? (2.5%)
(B) If you are the judge, how will you decide the case? Briefly explain your answer.
(2.5%)
SUGGESTED ANSWER
(A) The effect of converting the 20% discount from a “tax credit” to a “tax deduction”
is that the tax benefit enjoyed by sellers of goods and services to senior citizens is
effectively reduced. A tax credit reduces the tax liability while a tax deduction merely
reduces the tax base. Under the tax credit scheme, the establishments are paid back
100% of the discount they give to senior citizens while under the tax deduction
scheme, they are only paid back about 32% of the 20% discount granted to senior
citizens.
(B) I will decide in favor of the Constitutionality of the law. The 20% discount as well
as the tax deduction scheme is a valid exercise of the police power of the State
(Manila Memorial Park Inc. v. Department on Social Welfare and Development, G.R.
No. 175356, December 3, 2013, 711 SCRA 302)

Q. 11. Soaring Eagle paid its excise tax liabilities with Tax Credit Certificates (TCCs)
which it purchased through the One Stop Shop Inter-Agency Tax Credit Center
(Center) of the Department of Finance. The Center is a composite body of the DOF,
BIR, BOC and the BOI. The TCCs were accepted by the BIR as payments. A year
after, the BIR demanded the payment of alleged deficiency excise taxes on the
ground that Soaring Eagle is not a qualified transferee of the TCCs it purchased from
other BOl-registered companies. The BIR argued that the TCCs are subject to post-
audit as a suspensive condition. On the other hand, Soaring Eagle countered that it
is a buyer in good faith and for value who merely relied on the Center’s
representation of the genuineness and validity of the TCCs. If it is ordered to pay the
deficiency, Soaring Eagle claims the same is confiscatory and a violation of due
process. Is the assessment against Soaring Eagle valid? Explain. (5%)
 
SUGGESTED ANSWER
No. The assessment is invalid because the TCC’s used by Soaring Eagle are valid
and effective. A TCC is an undertaking by the government through the BIR or DOF,
acknowledging that a taxpayer is entitled to a certain amount of tax credit from either
an overpayment of income taxes, a direct benefit granted by law or other sources
and instances granted by law such as on specific unused input taxes and excise
taxes on certain goods. As such, tax credit is transferable in accordance with
pertinent laws, rules, and regulations (Pilipinas Shell Petroleum Corp. v.
Commissioner of Internal Revenue, G.R. No. 172598, December 21, 2007, 541
SCRA 316).

Q. 14. Lucky V Corporation (Lucky) owns a 10-storey building on a 2,000 Sous

meter lot in the City of Makati. It sold the lot and building to Rainiere P80million. One
month after, Rainier sold the lot and building to Health Smoke Company (HSC) for
P200 million. Lucky filed its annual tax return and declared its gain from the sale of
the lot and building in the amount of P750,000.00
An investigation conducted by the BIR revealed that two months prior to the sale of
the properties to Rainier, Lucky received P40 million from HSC and not from Rainier.
Said amount of P40 million was debited by HSC and reflected in its trial balance as
“other inv. — Lucky Bldg.” The month after, another P40million was reflected in
HSC’s trial balance as “other inv. — Lucky Bldg.” The BIR concluded that there is tax
evasion since the real buyer of the properties of Lucky is HSC and not Rainier. It
issued an assessment for deficiency income tax in the amount of P79 million against
Lucky. Lucky argues that it resorted to tax avoidance or a tax saving device, which is
allowed by the NIRC and BIR rules since it paid the correct taxes based on its sale to
Rainier. On the other hand, Rainier and HSC also paid the prescribed taxes arising
from the sale by Rainier to HSC. Is the BIR correct in assessing taxes on Lucky?
Explain. (5%)
SUGGESTED ANSWER
Yes. The sale of the property by Lucky V Corporation (Lucky) to Rainer and
consequently the sale by Rainer to HSC being prompted more on the mitigation of
tax liabilities than for legitimate business purposes, therefore, constitutes tax
evasion. The real buyer from Lucky is HBC as evidenced by the direct receipt of
payments by the former from the latter where the latter recorded “other investments
– Lucky Building”. The scheme of resorting to a two-step transaction in selling the
property to the ultimate buyer in order to escape paying higher taxes is considered
as outside of those lawful means allowed in mitigating tax liabilities which makes
Lucky, criminally and civilly liable. Hence, the BIR is correct in assessing taxes on
Lucky (CIR v. Estate of Benigno P. Toda, Jr., G.R. No. 147188, September 14, 2004,
438 SCRA 290).

19 (b) Explain the concept of double taxation. (2.5%)

(B) Double taxation occurs when the same subject or object of taxation is taxed twice
when it should be taxed but once. Double taxation is prohibited. when it is an
imposition of taxes on the same subject matter, for the same purpose, by the same
taxing authority, within the same jurisdiction, during the same taxing period, with the
same kind or character of a tax (84 C.J.S. 131-132). It is permissible if taxes are of
different nature or character, or the two taxes are imposed by different taxing
authorities (Villanueva v. City of Iloilo, G.R. No. L-26521, December 28, 1968, 26
SCRA 578).
19 (a) Jennifer is the only daughter of Janina who was a resident in Los Angeles
California, U.S.A. Janina died in the U.S. leaving to Jennifer one million shares of
Sun Life (Philippines), Inc., a corporation organized and existing under the laws of
the Republic of the Philippines. Said shares were held in trust for Janina by the
Corporate Secretary of Sun Life and the latter can vote the shares and receive
dividends for Janina. The Internal Revenue Service (IRS) of the U.S. taxed the
shares on the ground that Janina was domiciled in the U.S. at the time of her death.
SUGGESTED ANSWER
(A) Can the CIR of the Philippines also tax the same shares? Explain. (2.5%)
Yes. The property being a property located in the Philippines, it is subject to the
Philippine estate tax irrespective of the citizenship or residence of the decedent
(Sec. 85, NIRC). However, if Janina is a non-resident alien at the time of her death,
the transmission of the shares of stock can only be taxed applying the principle of
reciprocity (Sec. 104, NIRC).

Q. 8. In 2011, Solar Computer Corporation (Solar) purchased a proprietaru

membership share covered by Membership Certificate No. 8 from the Mabuhay Golf
Club, Inc.. for P500,000.00. On December 27, 2012, it transferred the same to
David, its American consultant, to enable him to avail of the facilities of the Club.
David executed a Deed of Declaration of Trust and Assignment of Shares wherein
he acknowledged the absolute ownership of Solar over the share; that the
assignment was without any consideration; and that the share was placed in his
name because the Club required it to be done. In 2013, the value of the share
increased to P800,000.00
Is the said assignment a “gift” and, therefore, subject to gift tax? Explain. (5%)
SUGGESTED ANSWER
No. The transfer is not a taxable donation because there is no divestment of
ownership by the transferor. The purpose of the transfer is simply to allow David to
avail of the facilities of the Club. The execution of a “Deed of Declaration of Trust
and Assignment of Shares” where the absolute ownership by Solar of the share is
acknowledged would show that there is no relinquishment of ownership by Solar.
The transfer being merely a transfer in form but not in substance, the same is not
subject to gift tax.
Q. 4. The City of Maharlika passed an ordinance imposing a tax on any sale or
transfer of real property located within the city at a rate of fifty percent (50%) of one
percent (1%) of the total consideration of the transaction, Jose sold a parcel of land
in the city, which he inherited from his deceased parents, and refused to pay the
aforesaid tax. He instead filed a case asking that the ordinance be declared null and
void since the tax it imposed can only be collected by the national government, as in
fact he has paid the Bureau of Internal Revenue (BIR) the required capital gains tax.
If you were the City Legal Officer of Maharlika, what defenses would you raise to
sustain the validity of the ordinance? (5%)
SUGGESTED ANSWER
I would argue that the City is allowed to levy a tax on transfer of real property
ownership (Sec. 135, LGC). The capital gains tax which is an income tax collected
by the national government is entirely different from the tax on sale or transfer
imposed by the ordinance. The tax imposed by the ordinance not being in the nature
of an income tax, the imposition of the income tax by the national government will
not pre-empt the tax sought to be imposed by the ordinance. I would further argue
that the imposition by the national government of a tax will pre-empt Local
Government Units (LGU) only if there is no specific provision under the Local
Government Code giving said power (Bulacan v. CA, G.R. No. 126232, November
1998, 299 SCRA 442)
Q. 12. The Philippine-British Association, Inc. (Association) is a non-stock non-profit
organization which owns the St. Michael’s Hospital (Hospital) Sec. 216 in relation to
Sec. 215 of the LGC classifies all lands, buildings and other improvements thereon
actually, directly, and exclusively used for hospitals as “special.” A special
classification prescribes a lower assessment than a commercial classification.
Within the premises of the Hospital, the Association constructed the St. Michael’s
Medical Arts Center (Center) which will house medical practitioners who will lease
the spaces therein for their clinics at prescribed rental rates. The doctors who treat
the patients confined in the Hospital are accredited by the Association. The City
Assessor classified the Center as “commercial” instead of “special” on the ground
that the Hospital owner gets income from the lease of its spaces to doctors who also
entertain out-patients. Is the City Assessor correct in classifying the Center as
“commercial?” Explain. (5%)
 
SUGGESTED ANSWER
No. The Medical Arts Center is an integral part of the Hospital and should be
classified for assessment purposes as “special”. The fact alone that the doctors
holding clinics in the Center are those duly accredited by the Association who owns
the Hospital, and these doctors are the ones who can treat the Hospital’s patients
confined in it, takes away the said Medical Arts Center from being categorized as
“commercial” since a tertiary hospital is required by law to have a pool of physicians
who comprise the required medical departments in various medical fields (City
Assessora Cebu City v. Association of Benevola de Cebu, Inc., G.R. No. 152904,
June 2007, 524 SCRA 128).
7
Q. 9 (A) Explain the procedure for claiming refunds or tax credits of input Value
Added Tax (VAT) for zero-rated or effectively zero-rated sale. under Sec. 112 of the
National Internal Revenue Code (NIRC) from the filing of an application with the CIR
up to the CTA.
SUGGESTED ANSWER
(A) In order to be entitled to a refund/tax credit of excess input VAT attributable to
zero-rated or effectively zero-rated sales, the following requisites must be complied
with:
The claim for refund must be filed with the Commissioner within 2 years counted
from the last day of the quarter when the zero. rated sale was made (Sec. 112,
NIRC);
The claim for refund must be accompanied by a statement under oath that all
documents to support the claim has been submitted at the time of filing of the claim
for refund (RMC 54-14);
The Commissioner must decide on the claim within 120 days from date of filing and
the adverse decision is appealable to the CTA within 30 days from receipt (Sec. 112,
NIRC; CIR v. Aichi Forging of Asia, Inc., G.R. No. 184823, October 6, 2010, 632
SCRA 422);
If no decision is made within the 120-day period, there is a deemed denial or
adverse decision which is appealable to the CTA within 30 days from the lapse of the
120-day period (Sec. 112, NIRC; Sec. 7(a)(1) of RA 1125, as amended by RA 9282).

Q. 13. Pursuant to Sec. 11 of the “Host Agreement between the United Nations and
the Philippine government, it was provided that the World Health Organization
(WHO), “its assets, income and other properties shall be: a) exempt from all direct
and indirect taxes.” Precision Construction Corporation (PCC) was hired to construct
the WHO Medical Center in Manila. Upon completion of the building, the BIR
assessed a 12% VAT on the gross receipts of PCC derived from the construction of
the WHO building. The BIR contends that the 12% VAT is not a direct nor an indirect
tax on the WHO but a tax that is primarily due from the contractor and is therefore
not covered by the Host Agreement. The WHO argues that the VAT is deemed an
indirect tax as PCC can shift the tax burden to it. Is the BIR correct? Explain. (5%)
 
SUGGESTED ANSWER
No. Since World Health Organization (WHO), the contractee, is exempt from direct
and indirect taxes pursuant to an international agreement where the Philippines is a
signatory, the exemption from indirect taxes should mean that the entity or person
exempt is the contactor itself because the manifest intention of the agreement is to
exempt the contractor so that no tax may be shifted to the contractee (CIR v. John
Gotamco & Sons, Inc., G.R. No. L-31092, February 24, 1987, 148 SCRA 36). The
immunity of WHO from indirect taxes extends to the contractor by treating the sale of
service as effectively zero-rated when the law provided that, “services rendered to
persons or entities whose exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects the supply of such service
to zero percent (0%) rate” (Section 108(B) 3, NIRC). Accordingly, the BIR is wrong in
assessing the 12% VAT from the contractor, Precision Construction Corporation.